The Labour Party Spokesperson on Finance, Deputy Joan Burton, has written to the Minister for Finance, Brian Lenihan, raising a number of legal and constitutional questions about the draft NAMA legislation.

Referring to Section 58, the key section of the Bill which deals with valuation, Deputy Burton says:
“According to the section, the concept of ‘long-term economic value’ is defined as the value that the property can reasonably be expected to attain in a stable financial system when current crisis conditions are ‘ameliorated’ and in which a future price or yield of the asset is consistent with reasonable expectations having regard to the long-term historical average.

“‘Current crisis conditions’ is not defined in the Bill. Under the Interpretation Act 2005, an enactment must be construed as always speaking. In other words, an Act, whether passed yesterday, 5 years ago or 10 years ago, must be read by a court in the present tense. Specifically, “an enactment continues to have effect and may be applied from time to time as occasion requires”.

“So, given that the NAMA legislation is intended to be in place for at least a decade or so, the basic question arises as to whether ‘current crisis conditions’ means the conditions prevailing at the time the Act is passed or whether it means the conditions then prevailing at any future time when the Act has to be construed and interpreted by a court at a future date.”

Deputy Burton also raises questions about the constitutionality of Section 88 of the Bill section that allows the Minister, by order, to exempt particular undertakings from the application of the general rule enacted under the previous section, section 87.

Citing previous judgements of the Supreme Court, Deputy Burton’s letter says:
“The Supreme Court upheld the right of the Minister to grant exemptions in respect of businesses of a particular class or kind. But it struck down as unconstitutional the power of the Minister to identify and exempt “any particular business” from the application of the general rule of law.

“There is a huge distinction to be made between defining a “class”, by reference to some objectively identifiable characteristics, and simply choosing a single individual to be made exempt from the application of the general rule of law”.

Full Text of Letter:

Brian Lenihan TD
Minister for Finance,
Government Buildings,
Dublin 2.

Re: NAMA legislation draft paper

Dear Minister,

I write to ask two separate, structural questions that arise from the publication of the draft legislation for NAMA. Both of these questions, it seems to me are important. I appreciate that the purpose of publishing the legislation in draft form is in order to allow these questions to be raised in a timely way. I would therefore be grateful if you could furnish a reply at the earliest opportunity.

The first question relates to section 58. As you know, the section is central to the Bill, because it deals with valuation methodology – the price the State will pay for the impaired loans and assets of the participating banks.

According to the section, the concept of “long-term economic value” is defined as the value that the property can reasonably be expected to attain in a stable financial system when current crisis conditions are “ameliorated” and in which a future price or yield of the asset is consistent with reasonable expectations having regard to the long-term historical average.

“Current crisis conditions” is not defined in the Bill. Under the Interpretation Act 2005, an enactment must be construed as always speaking. In other words, an Act, whether passed yesterday, 5 years ago or 10 years ago, must be read by a court in the present tense. Specifically, “an enactment continues to have effect and may be applied from time to time as occasion requires”.

So, given that the NAMA legislation is intended to be in place for at least a decade or so, the basic question arises as to whether “current crisis conditions” means the conditions prevailing at the time the Act is passed or whether it means the conditions then prevailing at any future time when the Act has to be construed and interpreted by a court at a future date.

I presume you accept that the legislation will give rise to litigation and that its interpretation will be a matter for courts to decide for years to come.

The lack of specificity as to the meaning of “current crisis conditions” and the potential difficulty for any court at a future time to work out what the expression means – in particular, the meaning of the word “current” when embodied in a statute that is always speaking in the present tense – seems to me to undermine any attempt to give legal meaning and effect to the notion of “long-term economic value”.

What will a court in 5 years time define as the “conditions” that identify the “current crisis”?

I appreciate that, in its long title, the Bill is an Act to address a serious threat to the economy and to the systemic stability of credit institutions in the State generally.

But, given that “current crisis conditions” and their amelioration are both concepts that appear central to the definition of “long-term economic value” – which is in turn the basic concept that will govern the price to be paid by the State for impaired loans, I would think it is vital to have more spelled-out thinking about what this phrase actually means.

My second query relates to section 88 of the Bill. This section allows the Minister, by order, to exempt particular undertakings from the application of the general rule enacted under the previous section, section 87.

Section 87 is designed to protect “participating institutions” from the negative effects of signing up to NAMA. Presumably, there are various agreements that would trigger payment obligations if a bank signs up to NAMA. The purpose of the section is to make void a number of legal instruments that would otherwise become effective on the passing of the Bill, on an institution becoming a participating institution, or on certain similar eventualities.

But the following section then allows the Minister to make exemptions by order from this rule, “in a particular case”.

You will know that, in East Donegal Co-Operative Ltd. Attorney General [1970] IR 317, the Supreme Court considered a comprehensive assault by the plaintiffs on the Livestock Marts Act 1967.

The plaintiff’s case was against what it contended was excessive and potentially unconstitutional power vested in the Minister by way of regulation of their business.

The plaintiff lost on most points. But it succeeded on one. The Act purported to confer on the Minister the power, “if he so thinks fit, [to] grant exemption from the provisions of this Act in respect of the carrying on of any particular business or business of any particular class or kind”.

The Supreme Court upheld the right of the Minister to grant exemptions in respect of businesses of a particular class or kind. But it struck down as unconstitutional the power of the Minister to identify and exempt “any particular business” from the application of the general rule of law.

There is a huge distinction to be made between defining a “class”, by reference to some objectively identifiable characteristics, and simply choosing a single individual to be made exempt from the application of the general rule of law.

I am sure you and your advisers have considered the East Donegal case in the context of sections 87 and 88.

I would be grateful if you could elaborate as to how you think the provisions of those sections, which seek to enable you to exempt single individuals or institutions from the law as passed by the Oireachtas, sit comfortably with the Constitution as interpreted by the courts.

Thank you for any clarification you can provide in relation to these two specific areas of concern I have identified. No doubt there will be more. I would be grateful for a response at your earliest convenience.

Yours sincerely,

___________________________
Joan Burton TD
Labour party Spokeswoman on Finance

“The comments on RTE today by Mr Bo Lundgren were a welcome restatement of the basic reason for bank nationalisation at this time. Mr Lundgren is a credible witness. He is a former Minister in a conservative Swedish Government that had to grapple with bank insolvency issues that arose from a property bubble in the 1990s.

“He has appeared as an expert witness at the USA Congress and was a welcome guest in July before the Dail Finance Committee and also at the Institute of European Affairs.

“After his Dublin appearances his position on nationalisation was blatantly misrepresented by various Government spokespeople notably Minister Lenihan and Minister Ryan. Both claimed they were broadly following the Swedish approach and claimed Mr Lundgren had endorsed the Government policy on NAMA.

“In fact he had done nothing of the sort and his renewed intervention today confirms that with absolute clarity.

“The NAMA debate has been centred on the vexed valuation issue. NAMA will have to put a value on the most toxic of the loans in our banking system. The public antipathy to the NAMA idea is based on the fear of over valuation that will place a crippling burden on taxpayers for years to come. Mr Lundgren addressed this issue head on and argues that the single compelling case for nationalisation is that there would be no reason to make early valuation of distressed assets as they would be transferred under nationalisation from one State agency to another. A mechanism to quarantine distressed loans can then be worked on to provide for the orderly disposal of these assets over time.

“Certainly Mr Lundgren supports the establishment of a NAMA type agency to handle the transferred loans after nationalisation with the purpose of preparing the nationalised banks for a return to the private sector in due course , hopefully at a profit.

“The claims of Government Ministers that this distinguished and experienced Visitor was endorsing their policy were wide of the mark and today’s interviews on RTE can only confirm how wrong they were.

“Mr Lundgren’s interview puts the nationalisation case right back centre stage in the NAMA debate. Even an increased State equity in the 2 main banks would be an inadequate response because it would not resolve the valuation issue and the upfront price the State would have to pay from borrowed funds.

“Mr Lundgren had valuable things to say also about political agreement on policies based on genuine consultation. Monday’s debate at the Finance Committee was valuable indeed but is was only a shadow of what true consultation means.

“I suggest Mr Lenihan go to his computer and listen carefully to a repeat of Mr Lundgren’s words on RTE”.

Brian Lenihan will appear before the Dail Finance Committee this Monday afternoon to answer questions about the draft NAMA Bill. As reported in today’s Irish Independent, Deputy Joan Burton has set out a number of questions which require answers.

He will have his work cut out for him if he wants to pull public opinion round to support the NAMA project because every TD of every party is aware of the deep suspicions held by ordinary citizens of all political viewpoints, right, left and centre about NAMA. He will have to be a lot more convincing than his efforts during the past week.

All this week Brian Lenihan has engaged in a desperate media blitz to shore up the NAMA project. Minister Lenihan has a reputation for optimistic bombast and for giving assurances that rarely come true.

Last year at the time of the Bank Guarantee we were assured that it would bring the credit famine to a quick end. Of course we now know it has done no such thing. Similarly Minister Lenihan assured delegates to the last Fianna Fail Ard Fheis that Ireland under his stewardship would be first out of recession in Europe. Now months later we know how false that promise was as each month’s indicators show Ireland under Fianna Fail is suffering the deepest recession among eurozone countries and will be the last to emerge from the current wreckage.

Brian Lenihan was at it again this week. I heard him twice on radio this week assuring listeners that the NAMA project would end up costing the taxpayer nothing and could actually result in a profit in the long term. His advisor Dr Alan Ahearne made a similar suggestion on Morning Ireland this week.

This kind of promise is nothing short of madness. It is simply delusional to ask our citizens to believe that this bank rescue scheme could be cost free and even profitable. Yet we have a Finance Minister and his advisor making that promise in order to sell
this flawed NAMA plan to a skeptical public.

It would be well to remind ourselves that it is this same set of Ministers who assured us time and again that the fundamentals were right in the Irish economy and that we would have a soft landing. Their current assurances on NAMA’s long term cost have exactly the same value as these previous assurances.

Brian Lenihan assurances have all the value of a debased currency. We have been fooled so often even in the recent past that it would be well to discount all his pledges as utterly worthless.

The NAMA plan has to stand or fall on its merits as set out in the details as published. Ministerial pledges from Mr. Lenihan are a political device to divert attention from the flaws that are inherent in the entire scheme. Trust is a rare commodity in politics. This entire project is so monumental in scale that it would be foolhardy of citizens to trust any ministerial assurances. To trust either Brian Lenihan or Brian Cowen on this occasion would be nothing short of reckless.

There are two aspects of the NAMA scheme that concern Labour and will be at the heart of our policy statement next week. One relates to the now notorious Section 58 which sets out the principles for valuing the bank loans that are to be transferred to NAMA. The other concerns the truly extraordinary powers that the Minister proposes to assume for himself in many of the other sections of the Bill. This aspect had had little attention so far but I propose to ask many pertinent questions about it when the Minister comes to the Dail Committee on Monday.

The Minister has told the public that NAMA will be independent of Government and this is supposed to be guaranteed in Section 9 of the Bill. Brian Lenihan knows full well that ordinary citizens would never tolerate political interference in its decisions by a party with Fianna Fail’s reputation for planning corruption and favourtism to its developer friends. So we have the Section 9 assurance that ‘NAMA is independent in the performance of its functions under this Act’.

As ever with Fianna Fail there is an escape clause. The same Section 9 has a get out provision to diminish the very independence it is supposed to guarantee. NAMA is to be independent “except where otherwise provided by this Act ”. All through the rest of the Bill NAMA, in all major respects, is not independent at all but must in the performance and discharge of its functions and powers act at the direction of the Minister irrespective of whether, in its view, what the Minister requires it to do is prudent or appropriate.

This is exactly what many citizens fear about NAMA. If the Bill in its current format goes ahead and becomes Law NAMA will hold more assets than any Property Company on earth. Yet a Government Minister of a party with heavily compromised links to property interests will have vast reserve powers to influence and control its operations and decisions while asserting at the same time that the body is independent. It is a hopeless contradiction. Only a Government with a hidden agenda would insist on such reserve powers to control an avowedly independent body.

Let me give a handful of examples to illustrate my point.

Section 13 (2) requires NAMA in the performance of its functions to have “regard to any guidelines issued by the Ministe under this Section.”
Section 14 sets out the Minister’s powers of direction and
they are quite extensive.
For instance, take Section 14 (2) “NAMA shall comply with the direction given by the Minister under this Section.”

It doesn’t seem to matter at all if the professional and expert persons employed by NAMA believe the Ministerial direction is wrong, misguided, misconceived or inappropriate, NAMA is bound to obey and does not appear to have any recourse to a second opinion or a veto in relation to the matter.

So clearly NAMA has headline independence to satisfy public opinion but the small print of the Bill is full of one type of Ministerial power or another to direct and control its decisions.

As for public accountability we have the same contradiction between the headline and the small print.

Section 45 is the headline and requires the Minister to furnish an annual statement to each of the Houses of the Oireachtas. But Section 45 has a subsection 4 which entitles him to omit “any matter that would disclose confidential
information.” You will find the definition of “confidential information” in Section 171 of the Bill and it is very wide indeed and I think it could be interpreted to justify the withholding any piece of information as the Minister sought fit.

So I see here a Bill that creates a body with awesome scope and economic impact which will be effectively a creature of Government and subject to extensive political control. The Labour Party calls for temporary nationalisation but no nationalised commercial body could ever be subject to the kind of political control that this Bill envisages for NAMA. In effect, a temporary nationalisation of the banks as we have proposed would be less political than NAMA as proposed by Brian Lenihan. The political powers over NAMA sought in this Bill shows a mindset on the part of Brian Lenihan that he is to be master of all he surveys and that the supposed independence of NAMA is no more than a figleaf to assure public opinion.

Then we come to the truly astonishing Section 102. This is a long complex Bill and you need to be wide awake reading it to capture the full extent of the powers it confers on the Minister. The most important parts concern the procedures for valuing loans and assets. Even after all that Section 102 contains this gem.

The Minister can reject the valuation of a portfolio as given by the Valuation Panel as being “wrong”. This is truly astonishing. After all the elaborate procedures to value a loan with expert opinion and professional advice the Minister can override the recommendation and declare it to be simply ‘ wrong’ and proceed to impose his own decision. In other words, if he doesn’t get the valuation he wants from the Valuation Panel they have to reconsider the valuation.

This seems to be the moral equivalent of, say, the Minister for Health rejecting the opinion of a medical Consultant that a certain surgical procedure is required by a patient and directing that a different surgical procedure be undergone by a patient.

It is a recipe for the arbitrary exercise of power by a Minister and is
quite an intolerable power.

Labour fundamentally objects to the provision in Section 58 to allow Long Term Economic Value to be the basis of valuing loans to be transferred to NAMA. This is no more than a formula to enable the Minister to value assets on a highly politicised basis. How can such long term values be calculated in a safe way that protects the State and the taxpayer? For years banks pretended that the loans they advanced to developers were based on their projections of continued economic growth. These projections have turned to dust and it would be wildly reckless to repeat the exercise now and make prophesies as to what a building, an office block, an hotel, a shopping centre may be worth in a decade. I totally reject this concept as the primary basis of deciding the price at which NAMA will receive loans from the banks.

The Minister and others say they will significantly increase the State’s shareholding in the banks if the NAMA exercise depletes their balance sheets to the point that more State capital will be required. But that would be nationalisation as a last resort when the insolvency of our banks would be so evident that the State would have to intervene as happened with Anglo Irish. In that case the international reputation of Ireland would be shredded entirely. In my view it would be far safer to nationalise now and avoid the entire immediate valuation dilemma. Nationalisation would simply transfer loans from one public agency to another and allow, as happened in Sweden, the values to be worked out in time as economic conditions hopefully improve. Our temporary nationalisation option is not determined by any ideological assumptions. It really is the safest option open to the Government now.

NAMA as it is presented in the draft Bill is by far the least safe option. It is built on a flawed concept of valuation. It envisages a highly politicised procedure that gives ultimate power to the Minister to decide what value is right and what is wrong. It gives truly awesome reserve powers to the Minister and limits his accountability to the Dail in the exercise of these powers under the guise of commercial sensitivity. It would be a bad day’s work for Ireland if Dail Eireann were to sanction NAMA as it is presented in the Bill and would justifiably provoke huge public anger at the gambles involved.

Speaking today at the Humbert Summer School in Ballina, Co. Mayo, Deputy Leader of the Labour Party, Joan Burton TD examined the dangers posed by NAMA for generations of Irish taxpayers. She called on the Government to allow real, constructive debate on NAMA and to avoid putting future generations in hock for billions of euro by overpaying for dodgy assets.

I’m sure you all remember a great poem from Leaving Cert English. Shelley’s Ozymandias sonnet tells the tale of a traveler who came across a vast derelict statue in a far off desert.

Two vast and trunkless legs of stone
Stand in the desert

The words on the pedestal tell the story of Ozymandias his ambitions and his destructive folly.

I mention this because Ireland is today littered with monuments to similar folly and the delusions of the past decade. As part of the NAMA process we are likely to take into public ownership many properties, hotels, apartment blocks and office blocks of little or no value.

Perhaps NAMA will choose to hold on to some and erect a plaque to remind a future generation of the greed that created the situation we now face with the NAMA Bill.

That Bill will be a critical test of our political institutions.

I wish I could say to you here that every clause will be scrutinized with care. That is unlikely. Take the Bank Guarantee. I recall going for a briefing to the Department of Finance. I suggested a few amendments that might impose some limits on taxpayer exposure only to be told that the Government would not accept any amendment.

The role of the Dáil was to rubber stamp the Bill and no other.

It would be intolerable if that same attitude prevailed next month.

The NAMA Bill rests on one particular clause Section 58 which sets out the rules for valuing the bank loans. It is a shoddy piece of work that does no credit to the Minister.

It could hardly be otherwise as Brian Lenihan is attempting, like Janus of the ancient Roman myth, to show two faces to the world looking in opposite directions.

One face is the Minister who needs to insist on the protection of the public interest. So the clause sets out current market value, however diminished, as a principle. That is what the former Swedish Minister Mr Lundgren recommended in his evidence to the Finance Committee. The results from AIB and the evidence presented in some of the High Court cases show just how heavy a discount is properly called for.

But Minister Lenihan also presents a different Janus face, reflected in a second basis of valuation contained in Section 58, a potentially bogus concept called Long Term Economic Value, which is the convenient cover he and Mr. Cowen use for a policy to pay way over the odds for the banks’ dodgiest loans on the pretext that the assets so acquired have an enduring value that is not reflected in the current market. That is political and economic mumbo jumbo.

I cannot believe that Dáil Eireann will pass so flawed a clause as section 58. Surely there are Cabinet Ministers who have qualms. Surely there are FF and Green backbenchers who will baulk at the shocking abdication of public interest that is inherent in Section 58.

This is the coming test of our parliamentary institutions:

To fight or to abdicate on Section 58.

To abdicate responsibility and to allow this clause to stand is to abandon the legislative role of the TD and to install a Cowen –Lenihan parliamentary dictatorship that is allowed to rule by decree without scrutiny or amendment.

Section 58 cannot pass proper scrutiny. It fails every test. Long Term Economic Value as defined in this section merits the exact words, ‘fanciful’ and ‘ lacking in reality’ used by Judge Kelly in rejecting Liam Carroll’s application last week.

The discount to be applied by NAMA has to reflect the current reality. Any consideration of future value has to be postponed till conditions in the economy generate such value. I can appreciate Professor Honahan’s suggestion that banks could share in any future value when the State has recovered its costs in full. But the evidence remains overwhelming that nationalization remains the safest policy as it does not require early valuations to be placed on the transfer of loans which would be between different public bodies. Mr. Lundgren emphasised this aspect on his visit to Dublin last month and it has a compelling logic that deserves greater public debate as an alternative to the gaping flaws of the entire NAMA set up.

There are many other reforms that could make our political institutions fit for purpose.

I believe we should open up the election of Ceann Comhairle.

I think we should look at the new procedures at Westminster for the election of the Speaker. It was a secret ballot and each nominee had to demonstrate some measure of cross party support in order to stand. In other words the office of Speaker is not in the gift of the ruling party.

I think it should be possible to allow a genuine Private Member’s initiative to get to the floor of the Dáil. If a TD can demonstrate a significant degree of interest in a public interest proposal with some evidence of cross party backing then time should be available to debate such an idea and if it commands a second stage majority it should get committee stage examination.

I served on the Public Accounts Committee and came to admire the work of the Comptroller and Auditor General (C&AG). I want to suggest an extension to his mandate. The USA has the Congressional Budget Office that does independent evaluations of spending proposals. Our C and AG can only report after the event. The mandate should be extended to enable a mandatory evaluation of cost to be tabled with every new proposal. We have bitter experience of rabbits out of hats on budget days that turn out to cost way in excess of what was first indicated. The decentralization fiasco is a case in point as is the 2002 announcement of the medical cards for the over 70s which came with a cost tag that did not reflect in any way the true ultimate cost. An extension to the C and AGs function could do that job as long as it was mandatory. It should also cover regular policy audits to see if the stated objectives of particular policies have been met.

We could also borrow another procedure from the US Congress. I refer to the rule that certain public appointments be subject to committee scrutiny and vote. The Office of C and AG, the appointment of Ombudsman are already subject to a Dáil vote but this is a formal process. I want the nominees to face a polite but thorough interview. The offices I have in mind, apart from the two I just mentioned, are Financial Regulator, Central Bank Governor, Chair of the proposed Election Commission and certainly the Chair of NAMA.

My party has long demanded a new law to protect whistleblowers. No institutional reform would be complete without such a measure. The Freedom of Information Act has proved its worth beyond measure and a new Government committed to reform will extend its scope and restore most of the sections that were deleted by FF in 2003.

Eamon Gilmore has already indicated his determination to overhaul the laws on election spending, on the disclosure of donations and limits on the size of donations. The present law is a joke. Millions were spent in 2002 and 2007 but the two big parties disclosed no donations above the threshold for disclosure. SIPO has drawn attention to this and I repeat here that Labour will insist on far reaching changes.

Political lobbying is a secret world that needs to be opened out and examined. One simple reform would be a register of lobbyists and I support that as a first step. It gets more difficult then but that is no reason to avoid the issue in a deeper way.

When does a pleasant lunch cross the line between a social occasion and a lobbying exercise? Even I was invited to have breakfast with the board of AIB, a strictly tea and toast affair, I assure you. Did my two cups of tea (the toast had run out by the time the plate reached me) constitute an AIB lobby of the Labour Party?

Frank McDonald and Kathy Sheridan describe an episode in their book on developers. They report an annual lunch organised by a leading auctioneer where Brian Cowen as Minister for Finance could meet the big players among Ireland’s developers while the Budget was in preparation. The venue was a private dining room in the Radisson Hotel on Merrion Road.

Ostensibly it was a social function with no purpose other than to eat, drink and be merry among friends. Equally one can assume these hard nosed businessmen (there are no women at these events) took the opportunity to let the Minister know what they would like to happen on the policy front in any Budget or Finance Bill that was in the offing.

Now how could you describe that event? Is it lobbying or is it lunch? It certainly wasn’t a free lunch. Mc Donald and Sheridan report that one participant had to write a cheque for €5000 to FF soon afterwards.

As a Sean O’Casey character might say, there’s lobbying and there’s lobbying.

Lobbying is one of the dark arts of influence peddling. We need to know more about it and to have stricter rules.

We have had 12 years of tribunals and still we don’t have a modern enforceable Anti Corruption Law. Amazingly even people who were named by Judge Flood in 2002 for corrupt payments and tax evasion, have never been disqualified as company directors let alone face more serious penalties. It beggars belief that this Government has done nothing to update the law on corruption, the penalties for corruption, the criminal procedures and the standard of proof required to secure conviction. Such a law, in my view, is a basic requirement of political reform.

May I briefly return to NAMA.

‘I have been reading remarks by Simon Johnson, a former IMF official with long experience of economic crises. This is what he has to say:

the real concern of the fund’s senior staff, and the biggest obstacle to recovery, is almost invariably the politics of countries in crisis. Typically, these countries are in a desperate economic situation for one simple reason—the powerful elites within them over-reached in good times and took too many risks’.

Sounds familiar.

So how does the IMF judge a Government’s resolve?

The IMF staff looks into the eyes of the Minister of Finance and decides whether the government is serious. The fund will give a country a loan but first it wants to make sure the Minister is ready, willing, and able to be tough on some of his friends. If he is not ready to throw former pals to the wolves, the IMF can wait.

I wonder how an IMF team would judge the capacity of this set of Ministers to face down their old cronies. Would a serious IMF team look at Brian Cowen in the eye and see there a man with the resolve with the determination to show his former friends the door.

Well would he? I think we all know the answer to that. It might have to come to that eventually but first this Government has a mindset that the plain people of Ireland are to be the first in the firing line, the children of Ireland are to be the target of cuts in welfare, in education, in health care before any effort is made to face down the elite that has been the favoured recipient of public largesse, of tax breaks, of easy tax exile status, of Cinderella rules, of public contracts.

Speaking in the Dáil today on the special debate on the IMF report on the prospects for an economic recovery in Ireland, Deputy Joan Burton argued that the report was a damning indictment of the Government’s economic bungling and handling of the banking crisis.

ot everything the IMF says or does merits its traditional bogeyman reputation among progressive politicians.

Its present Director Strauss Khan is one of the leading promoters of an international stimulus package to reverse the present recession.

On the other hand the hard medicine inspectors continue to ply their traditional trade with abandon in individual countries.

Like Janus in the ancient Greek myth, the IMF shows two faces to the world, one for stimulus and nutrition , one for medicine and the draining of blood.

I have been reading an interesting article by the IMF chief economist for 2007-2008 a Mr Simon Johnson. He is now Professor of Economics at the world famous MIT.

He has some very relevant things to say about his former organisation’s approach to countries in the kind of difficulties we are now experiencing.

One lesson you learn quickly, he says, when working at the IMF is that no one is ever very happy to see you.

A visit from the IMF is the signal of failure when circumstances are dire and all else has failed.

I want to quote one really vital thing that is most relevant to Ireland now:

The real concern of the fund’s senior staff, and the biggest obstacle to recovery, is almost invariably the politics of countries in crisis.
Typically, these countries are in a desperate economic situation for one simple reason—the powerful elites within them overreached in good times and took too many risks.

I think that is rather a perfect description of Ireland’s plight in 2009.

Johnson goes on :

These elites reckon—correctly, in most cases—that their political connections will allow them to push onto the government any substantial problems that arise.

That, Deputies, is the core of what we are debating, the efforts of a politically well connected golden circle to push our government to take their losses on board. That is what the ill-fated September 30th guarantee was all about. That is the heart of the NAMA policy. And that is why this country is at the edge of an abyss.

I go back to Mr. Johnson because he has been through this experience elsewhere and we can draw lessons.

Squeezing the golden circle, he writes, is seldom the strategy of choice among governments. Quite the contrary: at the outset of the crisis, those in the golden circle are usually among the first to get extra help from the government, such as the assumption of private debt obligations by the government.

Meanwhile, needing to squeeze someone, governments look first to ordinary working people—and it seems this Minister has set his eyes on Ireland’s children as the first victims of this strategy by cutting family allowances.
It is at this point where Mr Johnson is at his most revealing:
Listen to this : How does the IMF judge a Government’s resolve ?
The IMF staff looks into the eyes of the minister of finance and decides whether the government is really serious . The Fund will give a country a loan but first it wants to make sure the Prime Minister is ready, willing, and able to be tough on some of his friends.
If he is not ready to throw former pals to the wolves, the IMF can wait. And when he is ready, the IMF is happy to make helpful suggestions—particularly with regard to wresting control of the banking system from the hands of the most incompetent and avaricious “entrepreneurs.”

There is this really valuable lesson to be learned from IMF people like Mr Johnson because it allows us to test the genuine resolve of Ministers.

From long years of experience, the IMF staff knows its program will succeed—stabilizing the economy and enabling growth—only if at least some of the golden circle who did so much to create the underlying problems take a hit.
So I wonder how an IMF team would judge the capacity of this set of Ministers to face down their old cronies .
Would a serious IMF team look Brian Cowen and Brian Lenihan in the eye and see there men with the resolve and the determination to show their former friends the door.
I think we all know the answer to that.

It might have to come to that eventually but first this Government has a different mindset that the plain people of Ireland are to be the first in the firing line, the children of Ireland are to be the target of cuts in welfare, in education, in health care before any effort is made to face down the elite that has been the favoured recipient of public largesse, of tax breaks, of easy tax exile status, of Cinderella rules, of public contracts.

NAMA

I read the banking section of this report on Ireland with particular care. That €35 billion figure for bank losses should make any citizen pause and wonder if this Government has taken leave of its senses.

The IMF’s advice on banks is well worth careful study. Right from day one I put the
valuation of impaired loans front and centre of the debate on NAMA. Still today months later we are none the wiser about Government policy on this matter. One Minister went on Questions and Answers and said, as an article of faith, that developers would be pursued to the ends of the earth by NAMA to recover money loaned to them. What a joke. This Government is encumbered with so much baggage from its cosy dealings with developers that it could not chase anyone even to the end of the Leinster House plinth.

There is a justifiable fear and there is an echo of it in the IMF document that the so called haircut, the value discount, to be applied to impaired loans will be so minimal that these assets will be acquired at way over the odds. At present the stock market trade in bank shares reflect this belief and brokers are talking up the idea that the haircut will be no more than 20% in general. Now I ask who will decide? I don’t doubt that NTMA staff are on the taxpayers’ side on this. After all it is they who have to go into the market to negotiate the bonds to be used to finance this operation. They know the score about the interest rates that will have to be paid on these bonds, as much as €50 to 60 billions worth, maybe even more. The €3 billion already transferred this week to Anglo had to be borrowed and the NTMA people know that was not done easily.

The IMF are clear that the discount must be set at a level that is a genuine protection for the taxpayer even if the result triggers further State equity in the banks involved even to the point of full nationalization, rather the exact point my Party has made time and again in this House. I hope Minister Lenihan reads that section of the IMF document with care and with an open mind.

The various formulas he has used to date such as European guidelines about a wholly mythical long term economic value offer no protection against over valuation.

Is the interest of the taxpayer the primary consideration or is it not? For all the patriotic rhetoric we get from Minister Lenihan, we all know a deeper truth. The purpose of public policy at this point in time is to offer a rescue package to the FF Golden Circle.

As long as this mindset prevails this Government is unsafe at any speed.

Speaking in the Dáil today at the 2nd stage of the Financial Measures (Miscellaneous Provisions) Bill which the Government is rushing through the Dáil, Deputy Joan Burton TD criticised attempts to allow the Minister for Finance to extend the bank guarantee by decree.

It is now 9 months since the fateful night of September 29th when the Bank Guarantee was hatched to save Anglo Irish on the eve of the end of its financial year.

What promises we heard from Minister Lenihan that day about new capital flows into the banks, and through them into the economy as a whole.

Today he is a sadder, and I hope a wiser, man.

Some are saying that we should simply trust Mr.Lenihan, because he’s a smart guy who knows what he’s doing.

Actually that’s only half true: Yes he is a smart guy .

But what, exactly, in the experience of the past 9 months since September 29th — a period during which Minister Lenihan repeatedly declared the bank crisis “contained,” and then offered a series of still unsuccessful fixes — what, may I ask, justifies the belief that he knows what he’s doing?

He’s making it up as he goes along and tonight’s Bill is just the latest installment.

Minister. Lenihan is now demanding near dictatorial authority and even immunity from review and scrutiny.

On his record he does not deserve this power and this immunity.

The flows of new credit to business have never happened. The bank crisis has got worse. The multi billion euro recapitalisation has come and gone and has been digested by the banks without the slightest hiccup. Still the flow of credit remains as elusive as ever.

NAMA is the new panacea to achieve what the guarantee failed to deliver.

And now tonight the Minister wants another prop to cover up the dismal failure of his original efforts nine months ago.

He wants to assume a stunning new power to decide on extensions to the guarantee, in effect he wants to rule by decree as if he were a new Napoleon.

I want to know: Why this and Why now?

Is it because Minister Lenihan and the Taoiseach do not expect to be in office when the September 2008 guarantee expires in September 2010.?

Is it that they want to impose the burden of his failed policies on his successor. Perhaps their cronies and political clients in the banks and among the developers want to have this extra lock on policy in the aftermath of a Fianna Fail defeat and are getting their demand in now lest this Government slips up soon.

For this Dail to award these sweeping powers to a Minister is an abdication of responsibility. For Government deputies to agree so casually to this Bill would be a shocking dereliction of duty. The Dail has a sacred duty to scrutinize the exercise of power by Ministers. This Bill abandons this duty and enables the Minister to exercise power without due accountability.

It should be opposed in principle.

The core value that is entirely absent here today is transparency. We only got the PWC report on Anglo Irish because that bank imploded under the weight of its persistent malpractice and had to be nationalized. We still have not got a full review of Bank of Ireland , of AIB, of Nationwide. How then can this House, in the absence of full information, so readily abandon its duty and transfer so much power to one Minister with no restrictions on the exercise of that power and to demand that he provide the Dail and the taxpaying public with sufficient evidential basis for the decisions he makes in the exercise of these powers.

If the Government is serious about the need to gain public support for this latest extension of protection to the banks we must have access to the evidence, warts and all. If Minister Lenihan refuses, then the scepticism at home and abroad about this Government’s bona fides remains warranted.

Without guarantees of accountability how can we so casually agree to this Bill? I do not trust the Minister’s party on this.

It has been and remains the silent spider at the centre of a conspiratorial web of dodgy property deals and corrupt rezoning.

How could it be trusted?

That party is simply too closely wedded to vested interests in the property sector to enjoy the trust of the Irish people in this sensitive matter.

So, why this extra layer of guarantee at this point?

First we had the September 29th guarantee, time-limited for 2 years.

Then we had NAMA, the mechanism to transfer dodgy loans to the State at excessive prices.

Now we have a proposal to abolish the 2 year time limit and replace it with Ministerial powers to extend the time.

In effect a triple layer of State protection for the banks.

If NAMA gets up and running in the coming year surely the banks will have their worst performing loans transferred by Sept 2010. Why would they then need an additional extension of the guarantee?

This is an extra cocoon of Lenihan insulation from the cold winds of the market for our wretched banks.

I thought capitalism’s great virtue was the value it placed on market disciplines.

If you invested and took risk then you were entitled to the rewards of success with modest taxation.

If you lost and your investment failed, then tough luck. Try again.

No lame ducks.

No sore losers.

Why are the banks now exempt from all those rules?

They are now lame ducks kept alive solely because of the guarantee and the prospect of NAMA taking on their soured loans.

And goodness aren’t they sore losers. Look at them, still in total denial of the wreckage they have created.
The Minister is a distinguished senior counsel. He knows what double jeopardy means.

What we have tonight is double jeopardy in reverse.

It is double indemnity for the banks . In fact it is triple indemnity for them.

Indemnity One is the first guarantee. It hasn’t worked so they want another fix.

Indemnity 2 is NAMA, the magic wand that will draw the poison of bad loans away from the balance sheets.

Now Minister Lenihan has gone one step further with this new power to extend the guarantee.

The banks are to be saved and now they are to be cocooned by three layers of Lenihan insulation.

Does moral hazard have any place in this Minister’s universe?

Moral hazard arises because an institution does not have to suffer the full consequences and responsibilities of its actions. When that is the situation the institution has a tendency to act less carefully than it otherwise would, leaving us, the taxpayer to pay for the consequences of those actions.

This weekend at Farmleigh he threw the avoidance of moral hazard out the window as a guiding principle of policy in the case of all commercial banks. Their debts, no matter how dodgy and how recklessly accumulated, are now the sovereign debts of the Irish State according to the Lenihan Farmleigh doctrine.

This is what he said according to the Irish Times: The Government Press Office did not circulate any speech from this event in Farmleigh.

It is not on the Department Website.

I wonder why.

What did Minister Lenihan say at this dinner? One sentence stands out.

‘‘Governments have to prevent banks failing and stabilise them’’.

There you have it:

No caveats. No exceptions.

Every bank is of systemic importance. None can be allowed to fail.

This in a nutshell is the new Fianna Fail ideology.
• Children can be allowed to die or to live lives of dreadful suffering because of health cuts.
• Children can be educated in super sized classes with no regard to their wellbeing.
• But no bank can be allowed to fail, whatever the cost to our country.
• Any speculative bondholder who risks his or her money in an Irish bank will be allowed the profit when things go well but none can be asked to take a hit if things go wrong.
• The private debt of Irish banks ranks equally to the public debt of the Irish sovereign State.
• The taxpayer has to pay always.
• And Sean Fitzpatrick keeps his mega pension no matter what.

The banks are to be free commercially but if anything goes wrong then Ireland, as a sovereign State, will offer not one, not two, but three and maybe more layers of insulation as required at whatever cost to protect them.

Moral hazard , the standard rule of capitalism that decrees there shall be no lame ducks and no sore losers, is set aside by Lenihan’s new doctrine without scrutiny, without controls and without limit.

I end by quoting one university economist on Minister Lenihan’s record

“Our current Irish finance minister is not competent for the job and his statements have no logical consistency.
Trying to interpret his statements in terms of a logically consistent perspective on the current market environment is an exercise in futility.”
(Gregory Connor NUI Maynooth)
I say this to all Deputies, Government and Opposition:
Don’t let yourself be railroaded into rule by decree.
That is what we are voting on tonight.

The Deputy Leader of the Labour Party and Spokesperson on Finance, Deputy Joan Burton has said that it appeared that the government was intent on ignoring the warnings from Dr. Michael Sommers and others and proceeding with the ill-fated NAMA proposal that threatens to place a financial millstone around future generations of Irish taxpayers.

Deputy Burton who was speaking while campaigning in Sligo with Labour Euro candidate, Susan O’Keeffe and Labour local government candidates, said that this was the only conclusion that could be drawn from the interview given by the Minister for Finance, Brian Lenihan, on Morning Ireland this morning.

“It is incredible that the Minister for Finance could so casually dismiss the very serious reservations expressed at the Public Accounts Committee last week by one of Ireland’s most distinguished public servants.

“Six weeks after the Minister first announced plans for the establishment of NAMA, we have not yet seen any legislation to establish it, and the public is no clearer as to how it will work. What is of even more concern is that it also apparent that Dr. Sommers and the NTMA, who are to be given responsibility for running the entire project, have no idea as to how it will operate.

“There was nothing in Minister Lenihan’s interview this morning to suggest that he is prepared to adopt a robust approach to the 100 developers who are responsible for the core of the bad debts that has brought our economy to its needs. I fear that if the government proceeds with the NAMA plan, the developers will use the very considerable wealth they still have to mount a legal challenge to the plan and that the state will become involved in a legal battle that will rival the Tribunals in terms of timeframe and costs.

“It is inevitable that the government will eventually have to nationalise the banks and it was significant that, in their amendment to the Labour Party Dail motion last week, they did not totally rule this out. It would make far more sense for the government to accept the Labour Party plan for temporary nationalisation, a proposal that has wide acceptance and support among economists. They should have the courage to do it now, rather than waiting to be forced to do it by events, which is they way they have reacted to the entire banking crisis over the past nine months.

“Taking the banks into public ownership prior to sorting out the bad debts will provide an upside when the banks are re-privatised. It will also avoid the lengthy and costly legal battles that the plan to establish NAMA is likely to bring.”